A Limited Liability Company (LLC) has become one of the most frequently used business structures in the United States ever since its inception in 1977. From its tax and managerial advantages to its less stringent corporate reporting requirements, an LLC can be very advantageous and can be owned by trusts and other companies, as well as domestic and foreign individuals.
What Is Important to Know About an LLC?
LLCs have pass-through taxation and also afford their owners limited liability protection. One advantage of an LLC is that the formation and ownership requirements are less stringent than a corporation. The LLC also offers an advantage in management flexibility. The LLC can be member-managed, meaning that it would be managed directly by the shareholders. Similarly, the owners of the LLC can agree to have the business manager-managed, meaning that the management can be structured and delegated from the owners to the managers. Other requirements of a corporation, such as a mandatory annual board meeting, are relaxed for the LLC.
What Are Some of the Tax Advantages of an LLC?
An LLC allows for pass-through taxation, thereby avoiding the “double tax” of a corporation. A corporation is a legal entity and must file its own tax returns; in contrast, an LLC is not a legal entity in the eyes of the IRS. An LLC operates in most ways as a corporation, yet the distributions to its members are not subject to taxation at the corporate level. Instead, the distributions are “passed through” the corporate level and are taxed only at the individual level. The LLC avoids “double taxation” that corporations must endure. Still, an LLC gives its owners limited liability protection since an LLC is a separate entity from its owners; as such, the two are separate, the personal assets of the owners, such as their personal residences and bank accounts, are not reachable by business creditors.
Can an LLC Have a Foreign Owner?
An LLC can be owned entirely by foreign entities or individuals. The State of Florida is one of the most common states used to start an LLC; this is because in Florida the taxes, management costs, and formations costs are usually less than in many other jurisdictions. Since Florida, and Miami in particular, attract foreigners to invest in and reside, there are advantages and disadvantages of organizing an LLC with foreign members.
When there is a foreign partner in an LLC, that partner must have a US Taxpayer Identification Number (ITIN). This must be obtained if the LLC is engaged in a US trade or business (i.e., if it will make money). United States tax laws require that foreigners pay taxes on any earnings made in the United States. Regardless of immigration status, the United States will allow foreigners to form a company as long as they have registered for an ITIN. The process to register is not complex, but it can be lengthy. Once the application is submitted, it can take up to eighteen weeks for an ITIN to be assigned.
When Do Foreign Owners Need a Visa?
While foreigners can be owners of an LLC that operates in the United States without a visa, if they wish to work for the company within the country, they will need to acquire one. Foreign owners could work as a corporate officer for a US Company without a visa, but in this case, they must be outside of the United States. Otherwise, they cannot receive a salary or compensation for services provided in the United States unless the foreign citizen has a work permit issued by the United States.
For a foreign citizen who simply wants to do business in the US, a B-1 visa is usually the right option to apply for, as it is meant for foreigners who wish to consult with business attorneys, attend professional or business conventions, or negotiate a contract. The B-1 visa is more for foreign persons looking to resolve quick issues for the company in the US. If you wish to invest in the US as well as work in the US, you could also apply for an nonimmigrant visa like the E-1 and E-2, or E-3 if the owner is from Australia, that will allow skilled workers or professionals to immigrate to and work in the US. Similarly, if the owner is a professional, or seeks to send one of its professional partners or employees to the United States, an L-1 visa might be the best option; however, depending on the profession, a different visa might be required.
What Are Some of the Foreign Owned LLC Reporting and Tax Requirements?
In order to file taxes, an LLC’s foreign owner must be deemed to be engaged in a US trade or business and 25% of the LLC’s ownership must be owned by the foreign entity or person. If both of these requirements are met, the IRS requires the foreign owner to file a Form 5472 and Form 1120. When a foreign owner owns an LLC, similarly to a domestic owner, the owner may elect to tax the LLC as an S-corporation. If the owner elects to do this, there may be additional reporting requirements as well as additional tax forms that may be required to file with the IRS.
